More than one in three offices in San Francisco are vacant despite an artificial intelligence boom that has boosted the stocks of major tech giants based in Silicon Valley, according to a report.
Real estate firm Cushman & Wakefield found that the vacancy rate for office space in San Francisco reached a record high of 34.5% in the second quarter — up from 33.9% in the first quarter.
That’s despite the city’s efforts to lure back tech workers who relocated during the COVID pandemic to other locales with cheaper cost of living, lower taxes and fewer incidents of crime.
In the second quarter of last year, the office vacancy rate in the city was 28.1%. Before the COVID pandemic, the office vacancy rate was just 5%, according to CNBC.
The dire state of office space in San Francisco has forced landlords to slash asking prices for rent to their lowest level in nearly a decade.
The average rent fell in the second quarter to $68.27 per square foot — the lowest since 2015, according to Cushman & Wakefield.
That’s down from $72.90 per square foot last year and $84.70 per square foot before the pandemic.
Earlier this year, commercial real estate firm CBRE predicted that it could take years for the city’s office market to fully recover.
The company’s report found that while the total vacancy rate was increasing, the rate at which it was increasing had slowed a bit.
San Francisco’s downtown managed to attract artificial intelligence startups who took up office space in the area.
Last year, Anthropic, the Amazon-backed rival to ChatGPT maker OpenAI, subleased 230,000 square feet of office space that once served as headquarters for Slack.
OpenAI, the world’s most valuable AI company, announced last fall that it would be leasing around 500,000 square feet of office space in the Mission Bay section of the city — the biggest lease of office space in San Francisco since 2018.
In May, Scale AI signed a lease to move in to Airbnb’s office building, where it will take up around 180,000 square feet of space.
While AI firms have cast a vote of confidence in San Francisco, so far the companies have been unable to save the city’s commercial real estate sector from its dire straits.
“San Francisco is certainly the center of AI, but AI is not going to save the San Francisco commercial real estate market,” Robert Sammons, senior research director at Cushman & Wakefield, told CNBC.
“It will help.”
The Bay Area has long reigned as the country’s key hub for tech companies. But the pandemic marked an inflection point for the city.
Since 2020, at least 53 companies have moved their headquarters out of San Francisco and the Bay Area.
Among the most high-profile firms that took part in the exodus were electric car maker Tesla, cybersecurity firm McAfee, software giant Oracle, computer manufacturer Hewlett Packard and the data analytics unicorn Palantir.
The advent of remote and hybrid work schedules has also prompted dozens of other tech companies such as Meta, PayPal, Google parent Alphabet, Slack and Salesforce to reduce its office footprint in the city.
San Francisco has also seen several popular retail brands shutter stores, including Nordstrom, Whole Foods, Old Navy and the Westfield San Francisco Centre shopping mall.
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